Last week, Fannie Mae rolled out some predictions for 2024 that spooked investors: A mild recession is coming next year. Kind of like a cold, but it’ll come for your wallet and asset values.

But, there’s good news. Fannie Mae has a rosy picture for 2025, outlining that the economy will bounce back.

Mild Recession in 2024: Fannie Mae forecasts a mild recession in 2024, with real Gross Domestic Product (GDP) expected to decline by 0.4% year-over-year. This downturn is part of a broader economic slowdown predicted for 2024.

The markets are also showing a high probability of a recession in 2024.

In October 2024, there is a 46% chance that the United States will have another economic recession. The probability of a recession is determined by comparing the 10-year and 3-month treasury rates one year in advance.

Economic Rebound in 2025: For 2025, the projection is more optimistic. The economy is expected to expand by 1.6%, indicating a rebound from the mild recession in 2024. This growth is anticipated despite a peak unemployment rate of 5.4% in mid-2025, with core inflation trending towards the Federal Reserve’s 2% target.

Home Sales and Mortgage Rates: Home sales are projected to bottom out in early 2024, influenced by the peak drag from previously rising mortgage rates. Fannie Mae expects mortgage rates to gradually decline over the next two years, averaging 6.8% by Q4 of 2024. This rate decline is anticipated to initiate a modest rebound in home sales, although the ongoing "lock-in effect" and low supply of homes for sale might act as constraining factors​.

GDP Growth in 2023 and Consumption Trends: The real GDP surged to 4.9% annualized growth in the third quarter of 2023. However, this growth is somewhat shadowed by the fact that real personal consumption grew much faster (4% annualized) than real personal incomes (0.6% annualized), reducing the personal saving rate to 3.4 percent. This imbalance suggests that high consumption levels may not be sustainable, and a moderation in growth is expected as spending and income return to more historically normal relationships.

Labor Market Trends: The labor market added 150,000 jobs in October, with average hourly earnings rising by just 0.2% over the month. However, the unemployment rate increased to 3.9%, indicating a slight softening in the labor market. This trend, combined with rising initial and continuing unemployment claims, suggests a gradual cooling of the labor market, which aligns with the broader economic slowdown predicted for the upcoming years.

Luxury Oversupply: Luxury apartments are in a bit of a pickle these days, with 1M in the works (70% of total apartments under construction are fancy-pants high-end). Further, the rent gap between market rate and luxury is stretching like $300 yoga pants at a $550 monthly disparity. This is leading many luxury landlords to offer more and more concessions to attract renters (Bisnow).

Berkeley's Going Sky-High: Following much “whaaaaaaaa” 😭😭 from the NIMBY crowd, City Council just green-lit taller buildings near UC Berkeley, aiming to squash that student housing crunch. Developers can stretch up to 85 feet high, stacking up to 12 stories (or even more) if they toss in affordable units. That's part of a broader plan to beef up density across many neighborhoods, adding 2,500 new units. And, to make room for these behemoths, they're cutting back on some red tape like density caps and open space requirements (CoStar).

Homeowners Seek Revenue: Re/Max crystal ball (a.k.a. their Housing Market Outlook Report) shows that homebuyers are now eyeing properties with a twist: rental potential. Why? It's all about playing it smart in a world where interest rates are as unpredictable as a game of Monopoly, and house prices are soaring higher. Think of it as hitting two birds with one stone: securing a home and a side hustle to soften those mortgage blows (FP).

30%: According to LendingTree's survey, 30% of Americans are crossing their fingers for a housing market crash in 2024. Why? They're betting on lower mortgage rates and home prices. But here's the catch: 45% actually expect a crash, with millennials (52%) leading the pack in crash predictions (Inman).

3.9%: Is the YoY home price increase another record high defying the high mortgage rates that have persisted. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported a modest 0.3% monthly rise (0.7% with seasonal adjustment) from August to September. This uptick follows a pivot from a seven-month decline, with a substantial 3.9% year-over-year gain from last September. Notably, Detroit led the pack with a 6.7% annual increase, followed by San Diego and New York (CoreLogic).

35%: Home sellers gave concessions to buyers in 35% of U.S. home sales in the three months ending Oct. 31, similar to the previous year but higher than two years ago (35.9% vs. 27.6%) (Redfin).

💔 Unexpected Roomies: 2023's housing market brings a bizarre twist for divorced couples: staying under the same roof! With mortgage rates soaring over 7% and home prices at record highs, splitting up is turning pricier than ever. Couples who snagged sub-3% rates in better days now find moving out financially daunting, with rent hikes adding to the woes. Imagine assigning separate floors, locking bedrooms, and timing laundry sessions – talk about awkward cohabitation (HW).